Factors that affect supply can be classified under two groups. They are:

1. Price of the good (product) and
2. Factors other than price.

1. Price of the good (product):

• Price is an important determinant of supply.
• A producer sells goods for earning profit. In order to earn higher profit, he supplies more goods when the price of a product rises and less when the price falls.
• Thus, there is a positive relationship between price of a good and its supply.

2. Factors other than price:
(A) Price of factors of production cost of production:
Change in cost of production affects its supply.

Example:

• When rent paid to the owner of land or wages paid to the labourer, decrease, the cost of production decreases.
• When cost of production decreases and if price remains unchanged, the profits increase. Hence, the seller is more willing to sell large quantity. Thus, supply expands when prices of factors of production fall.
• On the contrary, if cost of production rises, the situation becomes opposite and the supply contracts.

(B) Level of technology:

• When technology advances, time and efforts are saved. Hence, goods in large quantities and better quality can be produced that too with the same or lower costs.
• To add to this, if market price does not fall then profits increase and sellers are willing to sell more. Thus, supply expands.

(C) Future expectations about price:
If sellers speculate price of a product to rise in future then they contract the current demand so that they can build up stock for the future and vice, versa. Thus, future expectations about price affect the current supply of goods.

(D) Other factors:
Other factors that increase supply are:

• Increase in number of firms producing the product
• Existence of political stability in the state
• Favorable natural conditions
• Presence ,qf efficient law and order and legal systems
• Industrial relations are maintained well between owners and workers of production and marketigg activities, etc.
• On the other hand, supply decreases when the above factors become negative.